THE CARILLION collapse and the exposure of the 27,500 member pension scheme to massive losses on their retirement savings has increased scrutiny on the government over the protection offered to savers in light of the TATA and BHS pension controversies last year.

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It’s not right that a company can declare healthy-looking profits and not be forced to make larger contributions, to reduce their deficit in their pension scheme.

Jamie Smith-Thompson, Portafina

Carillion’s problems shocked the UK on Monday and with the dust still settling and the beleaguered Pension Protection Fund (PPF) was swiftly called into action.

The now-fallen manufacturing and service giant’s pension scheme was placed on a risk list by UK authorities in autumn last year, despite being awarded a number of government contracts.

The PPF scheme pays compensation to pension plan members if a company collapses. Hot on the heels of intervention to protect the steel workers at TATA plants in south Wales and the staff at BHS.

The PFF is now once again preparing to carry the £800m-£900m can for a public company by absorbing responsibility for the group’s 13 retirement funds.

But after TATA, BHS, Carillion, and potentially many more fragile firms burdened with pension responsibilities, is the government doing enough to protect the UK saver and why have pension pots become so vulnerable?

Ben Simpson, Chief Executive Officer at Menzies Wealth Management, told Express.co.uk despite a series of recent, high-profile business failures forcing pension schemes into the PPF, the scheme should be able to absorb the addition of the Carillion Pension schemes without serious issue.

He said: “Workers who have already retired can expect to receive their entitlement in full and those not yet retired will receive 90 percent of it, subject to a cap.

"However, they will not get away scot free – the indexation of their pension in retirement will be limited, that is to say their pension benefits may not keep pace with inflation.

“There is also a cap on the amount of money that can be paid out by the PPF to an individual at the age of 65.

"From 1 April 2017, this cap is £38,505.61 which means in practice that someone who has not yet retired will be restricted to £34,655.05 based on the 90 percent definition.”

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Carillion was a major government contractor

Jamie Smith-Thompson, managing director at pensions advice specialist, Portafina adds that it is not so much that pension pots that have become vulnerable, as it is the companies themselves who have historically provided their employees with final salary pension schemes.

He said: “10 years ago the Pension Protection Fund paid out £1million to people affected by a failed scheme. In the past year that compensation figure has risen to a staggering £661 million.

“Why have they become so much more vulnerable? For me, it’s back to the rules around how a company should make up shortfalls in the pension fund.

“It’s not right that a company can declare healthy-looking profits and not be forced to make larger contributions, to reduce their deficit in their pension scheme.”

But following on from BHS and TATA - whose own fat cats rake in top salaries and bonuses, the question remains, are these big UK firms overly reliant on the Pension Protection Fund as they risk the security of their staff’s savings against the mismanagement of their own firms?

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Jobs and pensions are under threat

Former bosses at Carillion have had their bonus and severance payments halted after an outcry over excessive executive pay in the wake of the firm’s collapse.

Carillion was expected to pay former chief executive Richard Howson a £660,000 salary and £28,000 in benefits until October this year while former finance chief Zafar Khan, who left Carillion in September, was due to receive £425,000 in base salary for 12 months, while interim chief executive Keith Cochrane was due to be paid his £750,000 salary until July.

Mr Smith-Thompson said: “I think ‘heavily reliant’ is the wrong term. By entering the PPF you are basically flagging up that you are a failing company, and no business wants to be in that position or to have that kind of public scrutiny.

“The problem is, companies want to declare profits often and dividends to shareholders so that share prices are not affected. Pension schemes are an outgoing that should be taken into account when these declarations are made.